CLEP Microeconomics chapter practice4 questions

23 Monopoly Efficiency, Price Discrimination, and Natural Monopoly

These questions come directly from the chapter practice in the book. Choose the best answer, check your reasoning, and use the explanation to correct any gap.

Question 1

Question 1 of 4

Compared with a competitive market with the same demand and cost, a single-price monopoly generally produces

Because monopoly chooses where MR=MC rather than P=MC, it restricts output and raises price relative to competition.
Show answer and explanation

A. less output at a higher price

Because monopoly chooses where MR=MC rather than P=MC, it restricts output and raises price relative to competition.

Question 2

Question 2 of 4

Successful price discrimination requires market power, identifiable buyer groups, and

If low-price buyers can resell to high-price buyers, the price differences collapse. Separation and resale limits are therefore necessary.
Show answer and explanation

E. limits on resale between groups

If low-price buyers can resell to high-price buyers, the price differences collapse. Separation and resale limits are therefore necessary.

Question 3

Question 3 of 4

Perfect first-degree price discrimination can eliminate the monopoly deadweight loss because the firm

Charging each buyer willingness to pay lets the firm profitably sell all units for which marginal benefit is at least marginal cost.
Show answer and explanation

B. sells every unit whose benefit covers marginal cost

Charging each buyer willingness to pay lets the firm profitably sell all units for which marginal benefit is at least marginal cost.

Question 4

Question 4 of 4

For a natural monopoly with declining average cost over the relevant range, marginal-cost pricing will often

With declining average cost, marginal cost lies below average cost. Setting price equal to MC therefore fails to cover total cost.
Show answer and explanation

D. produce a loss that may require a subsidy

With declining average cost, marginal cost lies below average cost. Setting price equal to MC therefore fails to cover total cost.

Quiz complete